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My Views on the Referendum

I recently presented my own personal views on the referendum at our Client Briefing. I thought long and hard about doing so as I questioned whether or not clients would actually welcome my opinion. However, I decided that as this was such an important issue, it would be irresponsible of me to keep my thoughts to myself. There were issues that I missed in the briefing and I also wanted to share my views with all those interested but who couldn’t attend. 

There is enough material out there about the various issues to sink the proverbial battleship. My approach when there is too much data is to look at the critical issue from a bigger picture perspective and then come to a clear conclusion. So that’s exactly what I have done...

I believe that we should not be having a referendum

I believe that we elect our politicians to make the complicated and difficult decisions on our behalf. In my opinion, it is not possible for the general public to be knowledgeable enough on the EU issue to make an informed decision. I have read books promoting that we leave, books arguing why we should stay, I have listened to fund managers to economists and I even read the recent Government pamphlet. However, after all that, whilst I certainly know a lot more than I did, I have hardly scratched the surface. As the saying goes, a little knowledge is a dangerous thing. In this case I think it could be very dangerous.

I believe that it is the wrong time to be having a referendum

Even if I agreed with having a referendum, I am adamant that now is not the time to be holding one. Running a country can be compared to running a company (much more complicated I admit). If I am looking to make a major change when running a company, I want to make sure that there is plentiful cash flow, healthy cash reserves and an abundance of resources to deal with the planned changes and, critically, to deal with the issues that we have not yet envisaged as and when they arise. We are at an economic weak point and, as a result, our civil service has faced unprecedented cut backs. In short, we have neither the time, money or resources to deal with an “out” vote should that be the outcome.

The structure of the referendum is wrong

So, let’s say you believe that we should be having a referendum and that the time is right to have one. Do you think the structure is right? Coming back to the company vs country analogy, if I were proposing a major change to a company’s strategy at its AGM, the chances are that I would need a significant majority of ALL shareholders to vote in favour.

With the EU referendum, we only need 51% and that’s of the voters who can be bothered to turn out. Could the fact that older people who have more time to vote affect the outcome? Could the outcome of such an important issue even come down to the weather? What happens if we get a majority of 51% to 49%? It's likely to lead to political chaos and the feeling of a divided country.

There is a lot wrong with Europe

It is very easy to get angry, frustrated and passionate about all that’s wrong with Europe. Yes, it’s unbelievably bureaucratic. Yes, the legal issues can be mindboggling. Yes, aspects of it are undemocratic. Yes, immigration is an important concern (but please don't confuse that with a refugee crisis caused by conflict).

All of these issues make great newspaper headlines that are designed to pull on our heart strings until we are seething with anger. However, we would still need to find a way to deal with them if we did vote to leave.

There are many reasons to stay

How do I know? The Government told me so in its lovely leaflet! Joking aside, the vast majority of economists think that we are better off and more secure staying in, as do the majority of fund managers and the IMF. They are, of course, ignoring all of the “heart felt” issues mentioned above and are instead focusing on the fundamentals.

The straw that breaks the camel's back

Whilst I believe that the UK is strong enough to survive outside of Europe, I have serious doubts as to whether Europe can survive intact if the UK votes to leave. It wasn’t long ago that our biggest global concern was surrounding Greece’s financial troubles and whether that could bring about the break-up of Europe. It is certainly possible that an “out” vote could be the catalyst that starts a chain reaction, ultimately ending with the complete break up of Europe.

Unintended consequences

If Europe were to break up, as a result I believe we would see a global recession that bankers and policy makers would be unable to fight. They are simply out of the ammunition needed to do so. It’s possible therefore that this recession could quickly morph into a depression and one thing’s for certain, stock markets around the world would plummet.

What are the odds?

I am not trying to exaggerate, scaremonger or get headlines. I am not saying that a recession is probable but what I AM saying is that it is possible. I would love to be able to work out the probabilities of it happening but unfortunately there are just too many variables in the chain to allow me to do that with any degree of science behind it. The fact that it’s possible is worrying enough for me.

How am I voting? 

If I were voting with my heart, I would be voting "out" in a heart-beat. However, I am not, I have to focus on the facts. Just like we focus on fundamentals when making an investment decision, I believe we need to do the same here and on that basis I am voting “in”. I just can’t bring myself to vote for something that could ultimately lead to a global depression.

My prediction

I believe that we will have a reasonable margin for “in” due to status quo bias, undecideds voting "in" and the army of secret "in" voters who will override their heart at the last minute, think with their heads and tick the "in" box, then return to the pub and tell all their friends about how bad Europe really is. That's certainly my hope anyway.